BOARD OF SUPERVISORS
Gloria Molina
First District
Yvonne Brathwaite Burke
Second District
Zev Yaroslavsky
Third District
Don Knabe
Fourth District
Michael D. Antonovich
Fifth District
MARK FINUCANE, Director
COUNTY OF LOS ANGELES
DEPARTMENT OF HEALTH SERVICES
313 N. Figueroa, Los Angeles, CA 90012
(213) 240-8101
September 28, 2000
Honorable Board of Supervisors
County of Los Angeles
383 Kenneth Hahn Hall of Administration
500 West Temple Street
Los Angeles, CA 90012Dear Supervisors:
MEDICAL SCHOOL OPERATING AGREEMENT BETWEEN THE COUNTY OF LOS ANGELES AND THE UNIVERSITY OF SOUTHERN CALIFORNIA TO PROVIDE PATIENT CARE AND MEDICAL TEACHING SERVICES AT COUNTY FACILITIES (1st District) (3 Votes)
IT IS RECOMMENDED THAT YOUR BOARD:
< Approve and instruct the Director of Health Services, or his designee, to offer and sign an agreement substantially similar to Exhibit I with the University of Southern California for the provision of patient care services and medical education through the medical school operating agreement at the Los Angeles County+University of Southern California (LAC+USC) Healthcare Network for the period July 1, 2000 through June 30, 2005. The maximum County payment to the University in Fiscal Year 2000-01 is $69,298,000. This includes both the maximum County obligation under this agreement for Fiscal Year 2000-01 of $52,210,353, as well as a payment of $17,088,313 made on July 3, 2000. Beginning with Fiscal Year 2001-02, the maximum annual County obligation under this agreement will be $70,241,000.
< Make a finding that the patient care services, as described herein, can be performed more economically by contracting with the private sector.
PURPOSE OF THE RECOMMENDED ACTIONS:
In approving the recommended actions, the Board is:
< Authorizing the Director, or his designees, to sign an agreement with the University of Southern California for the provision of direct patient care and medical education at the Los Angeles County+University of Southern California (LAC+USC) Healthcare Network, effective July 1, 2000 through June 30, 2005. The maximum County payment to the University in Fiscal Year 2000-01 is $69,298,000. This includes both the maximum County obligation under this agreement for Fiscal Year 2000-01 of $52,210,353, as well as a payment of $17,088,313 made on July 3, 2000, and
< Making a finding that contracting under Proposition A guidelines is cost-effective and operationally feasible for the provision of patient care services.
JUSTIFICATION:
The current medical school operating agreement between the County and the University of Southern California (University) dates back to 1987. The manner in which medical education and patient care is provided has changed significantly since this agreement was put into place. Additionally, the environment in which the County provides patient care services has changed and continues to change dramatically. The provisions of this agreement allow the County to move forward with the shift in patient care delivery to the ambulatory setting as well as the building of a 600 bed replacement facility. This agreement is the third of the medical school affiliation agreements to be developed and brings all three agreements into line with one another structurally and functionally, while recognizing the unique aspects of each institution.
This agreement originally was scheduled for Board consideration at the end of June. However, because it contained funding for ambulatory care expansion services that were contingent upon the conclusion of the Waiver extension negotiations, it was removed from the agenda, contingent upon the resolution of the Waiver and a determination that funding was available. Similar to the Public/Private Partnership agreements, the existing agreement with the University was extended, pending the outcome of the Waiver negotiations, to ensure continuation of services at LAC+USC Medical Center.
Without Board approval of this agreement, no mechanism will exist by which to make a second quarter payment to the University. If there is no agreement in place, the potential impact on clinical services at LAC+USC Medical Center is significant.FISCAL IMPACT:
The maximum County payment to the University in Fiscal Year 2000-01 is $69,298,000. This includes both the maximum County obligation under this agreement for Fiscal Year 2000-01 of $52,210,353, as well as a payment of $17,088,313 made on July 3, 2000. Beginning with Fiscal Year 2001-02, the maximum annual County obligation under this agreement will be $70,241,000. The net cost increase for the agreement is $4,136,000 over the Board-approved Fiscal Year 1999-2000 contract amount. Should the cost-of-living adjustment provision be exercised, the net cost for the agreement would increase by an additional $1,351,000, annually.
This amount reflects several changes in the funding of the USC operating agreement. The new agreement includes additional funds of $1,302,000 for the following new services:
< Anesthesiology ($250,000)
< Burn Surgery ($201,000)
< Radiology ($600,000)
< Vascular Surgery ($251,000)
The agreement also includes one-time payments totaling $541,000 for Anesthesia, Burn Surgery, Orthopedic, and Vascular Surgery services provided during the 1999-2000 contract year, for which the University has incurred costs but has received no reimbursement. At the approval of the Associate Director of Health Services, the University provided these services outside the scope of the previous agreement.
The agreement also reflects an increase in the fringe benefit rate paid to the University from 21.95 percent under the original agreement to 26.37 percent under the proposed agreement. The increased cost associated with this rise in the fringe benefit rate is $2,513,000.
Under the proposed agreement, urgent care services provided at the LAC+USC Medical Center=s urgent care center and at H. Claude Hudson Comprehensive Health Center (CHC) would be incorporated and provided by the University. Currently, the County has contracts with the USC Emergency Medicine physician=s group, as well as with individual physicians, to provide urgent care services in the Network. Incorporating the provision of emergency physician services into the affiliation agreement will allow the Department to more appropriately assign physician coverage at these locations. This consolidation results in the transfer of $2,893,333 to this agreement from existing resources, in Fiscal Year 2000-01, accounting for adoption of this agreement after the beginning of the fiscal year. Beginning in Fiscal Year 2001-02, the amount will be $4,339,000
Under the original agreement, the County paid the University at the start of the Fiscal Year an amount equal to the total salaries for the County-employed physicians. Each month the University paid an abatement back to the County for the salaries associated with these physicians, which the County then paid in salaries to these individuals. Under the proposed agreement, the County will not provide the University the funds associated with the County-employed physicians, but rather will retain these funds. This will eliminate the flow back and forth of these dollars. For Fiscal Year 2000-01, this amount is estimated to be $8,884,000.
A four percent contingency spending provision, of funding up to $2,665,000, is included in the proposed agreement to provide the County the option of transferring funds to the University to hire a new faculty member in the event of the departure of a County-employed physician, the provision of a cost of living adjustment, or for the purchase of additional services during the contract year.
The proposed agreement also allows for the provision of a cost of living adjustment for University-employed physicians, contingent upon County-employed physicians receiving a cost of living adjustment. The University would be entitled to a cost of living adjustment of up to two percent, provided County-employed physicians receive an increase of at least that amount. If County-employed physicians were to receive an increase in an amount of less than two percent, the University would only be entitled to an equal increase. Additionally, the University must provide, on or before execution of the new agreement, certain information related to the provision of services under the agreement and this information must be deemed acceptable by the Department prior to the County=s release of any funds for the purposes of the cost of living adjustment. The cost associated with the provision of a two percent cost of living adjustment is estimated to be $1,351,000, annually.
Proposition A Cost Effectiveness Analysis
The Department of Health Services, in consultation with County Counsel, has determined that an appropriate methodology by which to evaluate the cost effectiveness of this agreement is to compare the costs associated with the current delivery of services at LAC+USC Medical Center, through an academic model, with the cost of operating a non-teaching hospital. Under the present academic model, the County employs medical residents and contracts with the University for the provision of both patient care and resident education and supervision. Under the non-teaching model, the County would no longer have residents or an academic program and would instead employ only attending physicians to provide direct patient care.
The Department developed an estimate of the number of attending physician staff that would be required under the non-teaching model. The Auditor-Controller computed the cost of the Department=s staffing model and the cost of the current contract model. The Auditor-Controller has indicated that, based on the Department=s staffing model, the estimated net cost of the non-teaching model, approximately $113 million a year, exceeds the estimated net cost of the current contract model, which is approximately $90 million per year. Even at current County salaries, which are well below the national average, the review conducted by the Department indicates the cost of providing services under a non-academic model would well exceed that under the existing academic medical center model.
Funding of $58,977,000 is currently included in the Department=s Fiscal Year 2000-01 budget for the medical school operating agreement. Another $3,520,000 in current available funding will be transferred to the agreement for existing services now being incorporated into the contract. The remaining $4,136,000 in additional funding required for the agreement will be funded with existing resources.
Should the four percent contingency provision for payment of the cost of living adjustment, additional services or new faculty replacing departed County physicians be exercised, the Department will fund such activities through existing resources.
A payment of $17,088,313 was made to the University on July 3. This amount has been subtracted from the total agreement amount for the remainder of this contract year.
The Department has historically purchased both patient care (clinical) and resident supervision and teaching from the University. When it embarked upon renegotiating the medical school agreements, the Department=s goal was to increase the accountability of the Universities in performing under the agreements as well as to more clearly delineate the responsibilities of the parties. To this end, this agreement is very specific in the defining responsibilities of the University and the County.
Clinical Services
Under the agreement, the University is responsible for providing both clinical and academic services at LAC+USC and, as stipulated, at the associated facilities in the Northeast Healthcare Network. The agreement has been drafted to facilitate the integration of services between the hospital and the ambulatory care facilities. To this end, the University will provide some urgent care and ambulatory care services in the comprehensive health centers and health centers.
Academic Services
With regard to academic services, the University specifically is responsible for the development and oversight of the academic curriculum, supervision and training of interns and residents, and the continued accreditation of County training programs. The University is to appoint an academic administrator at the hospital who will oversee these activities. It is the intent of the parties that this individual will be the same person as the medical director who is appointed by the Department to supervise the clinical activities at the hospital.
In addition to integrating the delivery of clinical care throughout the Northeast Healthcare Network, this agreement is designed to facilitate the transition of medical education training programs from the inpatient to the ambulatory care setting. County physicians in the comprehensive health centers and health centers will be eligible for academic appointment, as appropriate, to provide medical education and supervision to residents who rotate to ambulatory care facilities for their training.
Accountability
The agreement puts into place clear requirements and principles of accountability with regard to purchased services. On or before execution of the new agreement, the University is required to provide information, including monthly, prospective clinical, administrative, and teaching schedules for LAC+USC, a list of the allocation of Full-Time Equivalents (FTE) providing purchased services under the agreement, and a blinded itemized list of physician salaries paid through the agreement.
The County, in concert with the University, will establish an initial methodology and process to measure productivity of the physicians paid through the agreement that is not dependent upon the development or implementation of a computer-based system. Clinical indicators would measure such things as patient readmission rates, medical record charting, and denied days. Academic standards would measure the pass rate of graduate residents on national certification examinations, performance of residents on required annual in-service clinical competency examinations, and the level of preparation and performance on institutional and program-specific reviews by national educational accrediting bodies. The intent is to capture activities performed under the agreement in both the inpatient and outpatient settings. Until such time as this methodology is in place, the University shall provide the information listed above.
Strategic Planning
The agreement also establishes a process through which to conduct long-term planning with regard to the provision of clinical services and residency training programs, as well as to monitor medical school performance under the agreements. Joint Planning and Operations Committees (JPOC) will be established at each of the hospitals, comprised of representatives from the facility and the medical school. This group will meet regularly to consider such issues as strategic planning related to the building and transition of a 600 bed facility, medical training programs, patient services issues, quality of training programs, and the development of new or curtailment of existing training programs. This policy and planning process is particularly important to this agreement, given the magnitude of changes facing LAC+USC as it moves to a 600 bed facility.
Similarly, a systemwide Joint Planning and Operations Committee has been created to address issues related to medical education and training programs across the Department. This committee includes representatives from the hospitals, Department administration, and the three medical schools. Issues that are not resolved at the facility JPOC level rise to the systemwide committee for consideration. Issues related to the impact of the new LAC+USC facility on other DHS facilities will be addressed at the systemwide JPOC as well.
Accreditation
The University also will be responsible for ensuring the continued accreditation of medical training programs at LAC+USC. Should a training program lose accreditation, once the current academic year is complete and/or residents can be placed elsewhere, the Department may choose to cease paying the University for the academic services provided in that particular program, until such time as the program in question regains accreditation. The loss of accreditation without recovery by programs in which more than 15 percent of County residents and post-graduate physicians are enrolled may, at the County=s discretion, constitute grounds for the immediate termination of the agreement.
Addenda
To avoid renegotiating the entire agreement each year, those provisions that are likely to change on an annual basis are contained in addenda to each agreement. Any material or substantive changes to either the agreement in whole or to the addenda, particularly with regard to the level of funding for the agreement, require action by the Board of Supervisors. Should the County desire to reduce the volume of services purchased through the agreement, such a change could be affected through amending the addendum. If no action is taken by the end of the contract year, the agreement would remain as status quo into the following contract year.
The agreement contains two addenda. The first, APurchased Services,@ delineates the nature and volume of the services to be purchased under the agreement. The second addendum, APerformance and Productivity Standard Development,@ establishes the process for the development of a system to measure the University=s performance and productivity under the agreement.
Agreement Term and Termination
The initial term of the agreement is five years, with a one-year automatic extension at the end of each contract year, unless either party serves notice of non-renewal, in which case the agreement would expire five years hence. This term was agreed upon to accommodate the Department=s intent to limit the length of the new agreement, the desire of the University to establish as much longevity and stability as possible, and the recognition of both parties of their obligations to the residents whose training programs, which range from three to seven years, are reliant on these agreements. The agreement allows either party to serve notice of non-renewal 90 days prior to the end of the current contract year, which will trigger the expiration of the contract four years from the end of the current contract year.
The agreement also contains provisions allowing either party to seek immediate termination of the contract due to certain events, which include the whole or partial destruction of the hospital by casualty, as well as the loss of accreditation by County training programs in which more than fifteen percent of County=s residents are enrolled Additionally, either party may terminate for cause such as the material breach of the agreement. Such termination will be effective as of the end of the next contract year, which terminates no less than 15 months after such notice is given.
Indemnification
The agreement provides that the County will indemnify USC for the professional liability it incurs as a result of the provision of Purchased Services required under the agreement. Additionally, each party has agreed to indemnify the other for liability arising from the employment practices of each party=s employees. The agreement also provides that, in the event the County fails to make required payments and/or the County reduces the volume of Purchased Services and related payment, the County will indemnify USC against any inability it may have in fulfilling its financial obligations to its tenured faculty, should the University be unable to find alternative compensated clinical or academic work for the physician within its health care system. This provision would apply to two groups of physicians: those tenured physicians who are employed by the County and receive a University stipend and those tenured physicians who transitioned to University employment under the 1987 agreement.
Other Requirements
The agreement has been reviewed and approved by County Counsel regarding the agreement=s required standard contract provisions, including provisions of the Living Wage Ordinance and the Contractor Responsibility and Debarment.
Because the agreement is a renegotiation of the existing agreement between the County and USC and the services are specific to the University, the Department did not advertise this agreement on the Office of Small Business= Countywide Web Site. Additionally, given the nature and scope of the services provided by the University under the agreement, as well as the historic relationship between the County and the University, the Department determined it was not feasible to competitively bid this contract.
As noted above, a cost effectiveness analysis has been conducted and concluded that the purchase of clinical services through this agreement is cost effective. The methodology of this analysis was validated by County Counsel and the results were confirmed by the Auditor-Controller.
This agreement will continue the provision of patient care and medical education services at the LAC+USC Medical Center, as well as some services at associated Northeast Network facilities.
When approved, the Department requires the original and three signed copies of the Board=s action.
Respectfully submitted,
Mark Finucane
Director of Health Services
MF:ak
Attachments
SUMMARY OF AGREEMENT
The maximum County payment to the University in Fiscal Year 2000-01 is $69,298,000. This includes both the maximum County obligation under this agreement for Fiscal Year 2000-01 of $52,210,353, as well as a payment of $17,088,313 made on July 3, 2000.
